Business owners without a business bank account are facing an uphill climb when it comes to getting approved for financing, according to a new survey.
Nav surveyed more than 600 business owners to find out how they use their business bank account and what impact it has on their financial situation. Of business owners without a business bank account, 70% were rejected for a loan in the past two years.
Many lenders use business bank account data in the underwriting process to confirm revenue, daily balances and time in business. Those factors can be make it or break it when it comes to the business loan application process — a fact that many new business owners don’t understand until they get rejected. Unlike the consumer loan process, which largely relies on personal credit and income in the underwriting process, the business loan process can rely on a variety of data points like personal credit, business credit, revenue, time in business and other cash flow data. (You can check your personal and business credit for free at Nav.)
The Annual Business Banking Survey also found that owners without a business bank account are twice as likely to have considered closing their doors. The majority of those business owners cited cash flow or lack of access to capital as the primary causes of their business trouble.
“The dynamics of small business lending have changed and not having a business bank account can be a recipe for disaster,“ said Nav’s Education Director, Gerri Detweiler. “Cash flow data is a primary way many lenders evaluate a business’s health. If you don’t have that data to provide, or if your cash flow is weak, it can be nearly impossible to get many types of loans.”
There are some business financing options that don’t require cash flow data. For example, business credit cards rely heavily on the personal credit of the business owner. The interest rates for business credit cards are relatively low for an unsecured financing option because of this personal guarantee. But the downside for business owners is that a personal guarantee means their on the line if they default for the loan. Developing a healthy business checking account and business credit score can give small businesses additional tools to use when applying for financing, open up different financing options and shield business owners from over-leveraging their personal credit.
How to find the right business bank account for you
The Annual Business Banking Survey found that most business owners valued convenience over cost and perks when choosing a business bank account option. Nearly half of those surveyed opted to go with the bank where they also do their personal banking, while only 17% of business owners chose their bank because of the low cost.
Ease of use and convenient hours also were important to business owners. Those with a business bank account were highly engaged with their data — 60% of business owners checked their business bank account at least once a day, and 93% checked their account at least once a week — underscoring the importance of online banking tools like mobile apps and alerts.
Nav recently launched a first-of-its kind beta test for customers which allows them to integrate their business checking, personal credit and business credit data all in one place to get matched to the financing offers that were best for them.
This article was originally written on April 24, 2018 and updated on October 20, 2020.